Friday, November 13, 2009

Cash Buyers Flood the East Bay Luxury Home Market

At a recent Berkeley Hills Realty office meeting, the buzz was about a flood of cash buyers in our marketplace. Grapevine scenarios aside, we wanted to take a closer look at the actual data. After reviewing data for all of the homes listed over $1,000,000 (which have closed escrow within the last three months) we discovered a remarkably high percentage were all cash buyers. Below is a table which includes the researched sales.*

Through a search of tax records we were able to determine which homes had a recorded first deed of trust, which evidences a loan on the property. All recorded loans were noted. For the properties which did not have recorded loans, we contacted the listing agents directly to confirm that the offer was presented as "all cash." Our research confirmed that of the 42 homes listed in Oakland and Berkeley, 13 were presented with all cash offers. 31% of the buyers paid all cash. Nearly one in three homes in this demographic is selling to an all cash buyer. Many others had down payments that were greater than half the sale price.

Many of the homes received offers within the first weeks of marketing. As a result, some homes sold for more than their asking price. Buyers have returned, but they are not relying on government incentives to do it. The Economic and Housing Stimulus plans have not helped the upper end of our market. First time buyer tax credits and FHA backed conforming loan programs most often do not apply to homes sold over one million dollars. Currently, jumbo loans are more difficult to obtain and often have undesirable terms. There is nothing in the current bailout that supports the luxury real estate market. Cash has stepped into this void.

Local Realtors are still reflecting on the effect the influx of cash offers will have on property values in the area. Some sellers are willing to significantly discount the price of their property for the benefits of a sure thing and a quick close of escrow. In multiple offer situations, often an "all cash" offer is accepted even though it is not the highest offer the seller has received. Many believe cash is keeping neighborhood values artificially low.

Others feel that cash transactions help support property values because the post-mortgage-meltdown loan process often diminishes value. Banks are exceedingly cautious and our unique housing stock is difficult to appraise. Appraisers have trouble finding comparable homes which fit the lenders confined criteria. Buyers often renegotiate the contract price to reflect the lender's low appraisal.

Pending sales are up 20% over last year in the national market (see our last post.) More inventory is expected as the recession begins to create its own wave of foreclosures in the upper end, a market which had been the least affected by the original mortgage crash. In balance, any mix of buyers will help our housing recovery as faith in the market is restored and more homes exchange hands.

Address

Original Price

Sold Price

%

DOM

BERKELEY

1149 Euclid

$1,200,000

$1,080,000

90%

108

65 SOUTHAMPTON AVENUE

$1,295,000

$1,300,000

100%

9

3064 BUENA VISTA WAY

$1,249,000

$1,100,000

88%

40

634 WILDCAT CANYON RD

$1,150,000

$1,225,000

107%

15

649 CRESTON RD

$1,195,000

$1,178,500

99%

12

1062 SPRUCE ST

$1,265,000

$1,225,000

97%

14

1331 OXFORD ST

$1,090,000

$1,260,000

116%

16

1456 CAMPUS DR

$1,150,000

$1,025,000

89%

15

663 VINCENTE AVE

$1,075,000

$1,177,000

109%

9

715 THE ALAMEDA

$1,600,000

$1,492,500

93%

39

257 HILLCREST RD

$995,000

$1,070,000

108%

10

435 PANORAMIC WAY

$1,350,000

$1,169,000

87%

76

2914 PIEDMONT AVE.

$1,800,000

$1,544,000

86%

69

14 THE UPLANDS

$1,340,000

$1,147,000

86%

89

60 THE UPLANDS

$1,490,000

$1,450,000

97%

28

2970 AVALON AVENUE

$2,200,000

$2,100,000

95%

20

2900 GARBER ST

$1,075,000

$1,110,000

103%

18

OAKLAND

2098 LEIMERT BLVD

$1,295,000

$1,226,000

95%

13

984 LONGRIDGE RD

$1,250,000

$1,025,000

82%

107

1119 CLARENDON CRES

$1,195,000

$1,174,000

98%

20

1074 ASHMOUNT AVE

$1,325,000

$1,292,000

98%

16

408 EUCLID AVE

$929,000

$1,007,000

108%

9

5670 CASTLE DR

$2,750,000

$2,355,000

86%

354

6201 WESTWOOD WAY

$1,650,000

$1,465,000

89%

137

6407 GWIN CT

$1,849,000

$1,560,000

84%

137

6026 PINEWOOD RD

$1,250,000

$1,185,000

95%

93

5621 FLORENCE TER

$1,300,000

$1,250,000

96%

50

6070 MAZUELA DR

$1,375,000

$1,300,000

95%

13

631 MOUNTAIN BLVD

$1,049,000

$1,060,000

101%

1

1907 GASPAR DR

$1,080,000

$1,060,000

98%

11

9047 Broadway Terrace

$1,595,000

$1,595,000

100%

0

676 FLORENCE AVE

$1,199,000

$1,150,000

96%

38

5351 LAWTON AVE

$1,295,000

$1,200,000

93%

45

5341 GOLDEN GATE AVE

$1,625,000

$1,240,000

76%

55

5901 MANCHESTER DRIVE

$1,550,000

$1,460,000

94%

32

40 SONIA ST

$1,125,000

$1,062,000

94%

14

5336 SHAFTER AVE

$995,000

$1,110,000

112%

9

157 KIMBERLIN HEIGHTS DR

$1,395,168

$1,201,268

86%

108

13835 SKYLINE BLVD

$1,650,000

$1,425,000

86%

94

14280 SKYLINE BLVD

$1,195,000

$1,080,000

90%

52

5651 Colbourn

$1,199,000

$1,135,000

95%

48

614 ALVARADO RD

$1,495,000

$1,495,000

100%

13

Totals

$1,360,337

$1,280,125

95%

49

*Note: We have left the financial research off this chart to protect the privacy of the individuals involved. Data is pulled from the Multiple Listing Service. Berkeley Hills Realty may not have participated in the sale.

Editor's note: Luxury homes in Berkeley and Oakland are not unique in attracting cash buyers. A recent home located on Carleton in Berkeley received seven offers, five of which were all cash. This home was listed for $425,000.

7 comments:

This is a great news after a long time from real estate sector. All the reports are too good and especially one thing really surprised me. 31% cash buyers is just amazing and that too at the time of recession.

Useful analysis and information. Thanks. I found this specific claim peculiar, however:

"Many believe cash is keeping neighborhood values artificially low."

"Artificially low"? How do they figure?

In the absence of cash buyers, presumably some of these houses would not have transacted at the price they did, forcing sellers to reduce price into a range where credit-worthy buyers qualify. That would result in lower prices.

I can see nothing "artificial" about a transaction price between willing buyer & willing seller, where sellers' preferences are dominated by the reliability of the transaction proceeding.

Cash is real, with the buyer holding the note at the end of the transaction. And a cash-price is the most "unartificial" one available, since there is no time-value-of-money or credit risk considerations with cash.

The more levered (i.e., credit-dependent) the transaction, the more "artificial," since a lender holds the note, not the buyer.

Where lending standards collapse and credit fraud pervasive, the "artificiality" of transaction price is maximized.

Thanks all for your comments. To Debtpocalypse, I appreciate you contribution to the conversation and yes this is a valid side of the argument.

From the experience within my office and my conversations directly with listing agents who were involved in the "all cash" transactions, two realities are taking place.

1.) In some cases, sellers truly benefit from an all cash offer and may even receive a higher price than would result from an offer limited by a lender driven appraisal. See HVCC regulations.

Conversely, sellers may be self-limiting based on their understanding of the current lending climate. Your comment begs the question whether or not the cash transactions reflect a true equilibrium of value derived from a "transaction price between willing buyer & willing seller”. I’m not sure I have a definitive answer, but I do believe that post sub-prime media is providing an influential sway. In my experience sellers are sometimes accepting a steeply discounted price because of fears based on the volatile financial market. Sometimes these fears have nothing to due with the willing and able buyers who are bidding on their home. Their buyer may be an exceptional “A-rated” pre-approved buyer with a substantial down payment without an appraisal concern. But, because of market fears, the seller becomes “unwilling” to consider them. Sure, cash is always preferable, but in the past, buyer’s who needed and wanted to finance the sale could off-set the all-cash preference by offering the seller a financial incentive-- a higher price. When sellers walk away from large amounts of money from well-qualified buyers, this discount begins to feel “artificial.”